RGS proteins (Regulators of G protein Signaling) are a recently discovered family of proteins that accelerate the GTPase activity of heterotrimeric G protein alpha subunits of the i, q, and 12 classes. The proteins share a homologous core domain (RGS box) that binds the alpha subunit but divergent amino terminal sequences that are the site of palmitoylation for the GAIP and RGS4 proteins. We investigated whether palmitoylation was important for the function of RGS4 and RGSr. Mutation of the cysteine residues at residue 2 or 12 or both on either protein decreased or completely blocked the incorporation of [3H] palmitate into RGS4 or RGSr in metabolic labeling studies of transfected COS cells and into purified RGS proteins in a cell- free palmitoylation assay. The inhibition or decrease in palmitoylation did not significantly change the amount of protein that was membrane associated nor did it affect the ability of the purified protein to interact with or act as a GAP toward Gi alpha. The function of the palmitoylation-defective mutants was tested in mammalian cells by measuring activity of a CREB-dependent reporter gene in HEK293T cells stimulated through the m1 muscarinic receptor, which is linked to Gq, or by measuring MAP kinase activation in HEK293 cells stably expressing CXCR1 stimulated by interleukin 8. In either case, wild type RGSr inhibited activation of the reporter gene by approximately 50%. However, impairment in this inhibitory ability was seen in the presence of RGSr or RGS4 proteins containing mutations that decreased or blocked palmitoylation. For RGSr, palmitoylation was not required for membrane attachment but was critical for its ability to modulate Gq and Gi-mediated signaling events. This result suggests that the amino terminal region in addition to the core domain binds the alpha subunit or palmitoylation localizes the RGS protein near the alpha subunit on cellular membranes.